Wednesday, February 11, 2015

Malaysia’s growth to offset oil slump

Malaysia’s Gross Domestic Product (GDP) for 2014 is set to exceed Moody Analytics’ forecast of 5.3% as technology production and the construction sector are helping to offset a slowdown in the energy sector.

Moody’s Analytics, in its report today, said Industrial Production, which registered a strong finish in 2014, posed upside risk to its fourth quarter Malaysian GDP forecast results due tomorrow.

Malaysia’s Industrial Production Index grew 7.4% in December 2014 compared with the same month a year ago, mainly due to positive growth in all indices of manufacturing, mining and electricity.

“Our 5.3% estimate could be on the low side, as strength in technology production and construction is helping to offset a slowdown in the energy sector,” said Moody’s Analytics Sydney-based economist Matthew Circosta in a report released today.

He said a reading of 5.6% or more would mean GDP growth reached 6% for all of 2014, which, excluding the recovery from the global recession in 2010, would mark Malaysia’s best result since 2007.

Meanwhile, the impact of low oil prices, which fell 50% from October to December, was negative for Malaysia because the country was a net energy exporter, he said.

However, the weaker ringgit, which at RM3.58 sits around a six-year low against the dollar, appeared to be mitigating some of the effects by improving competitiveness for other export products.

The ringgit opened at RM3.5670/5700 against the US dollar today.

Domestic demand was also growing at a steady clip, thanks to low unemployment and the government’s infrastructure programme, said Circosta.

He, however, warned that lower oil prices could take a bigger economic toll early this year as falling profits at big state-owned oil companies had already forced the government to cut spending plans.

On the positive side, an easing inflation outlook gives the central bank room to keep rates on hold for longer. The policy rate is expected to remain at 3.25% through 2016.